Value of U.S. Housing Market Hits Another All-Time High

Posted on October 29th, 2020

In the second quarter of 2020, the U.S. housing market hit an all-time high of $32.8 trillion, per The Federal Reserve’s Flow of Funds Report, as referenced in the latest Monthly Chartbook from the Urban Institute.

That was up from roughly $32.4 trillion in the first quarter of 2020, thanks to an increase in home equity from $21.1 trillion to $21.5 trillion.

Meanwhile, outstanding mortgage debt remained steady at $11.3 trillion, which tells us most borrowers are paying down existing mortgages and/or applying for rate and term refinances to lower monthly payments.

And that’s a good thing because it means most homeowners aren’t overleveraged like they were back in 2006, before the housing crisis ushered in the Great Recession.

Looking at it a different way, American homeowners have a collective loan-to-value ratio (LTV) of about 34%.

The Housing Market Appears to Be Healthy Despite Record Home Prices

value of housing market

  • U.S. property values continue to rise as mortgage debt keeps falling
  • American homeowners have a collective loan-to-value ratio (LTV) of about 34%
  • Mortgage debt is essentially unchanged from 2006 while home values have risen nearly $8 trillion
  • This means today’s homeowners are in good shape overall, but it’s harder for new buyers to enter the market

While one could always express caution when prices hit all-time highs, you’ve got to consider more than just the price.

More important is to look at housing affordability and the debt held by existing homeowners.

Fortunately, U.S. homeowners only carry a collective $11.3 trillion in mortgage debt, which appears to be flat or even lower than total housing debt back in 2006.

There are several reasons why today’s homeowners are carrying a lot less mortgage debt. For one, most haven’t tapped their equity.

Very few homeowners these days have applied for cash out refinances or pulled equity via home equity line of credit or home equity loan.

cash out share

Instead, they’ve been paying down their home loans each month, enjoying tailwinds propelled by record low mortgage rates.

Simply put, homeowners owe less and pay more in principal with each monthly payment, creating a housing market that is less leveraged.

This is a good thing for individual households and for the housing market as a whole because it means borrowers aren’t overextended, and have options if they’re unable to keep up with monthly payments.

A decade ago, mortgage payments often weren’t affordable because of so-called exploding ARMs that reset much higher after the borrower enjoyed an initial teaser rate.

And because they didn’t have any skin in the game, aka home equity, they couldn’t refinance to seek out payment relief.

That led to a flood of short sales and foreclosures, and eventually the creation of widespread loan modification programs such as HAMP and HARP.

Today, even if a homeowner falls behind due to COVID-19 or another setback, they could potentially sell for a tidy profit and move on.

This protects both that individual and their local housing market, which might otherwise suffer from declining property values due to the presence of distressed home sales.

In summary, this is why today’s housing market is very different than the one we experienced more than a decade ago, despite some economists seeing home prices in “bubble territory.”

But What About Housing Affordability Today?

  • Mortgage affordability has actually improved in recent years despite surging home prices
  • Existing homeowners typically spent 17.5% of household income on their monthly housing payments in September, down from 19.6% two years ago
  • Low mortgage rates are improving affordability, but rising down payments are hurting prospective buyers
  • Property values have grown at 2X rate of incomes over the past six years, and typical U.S. home now worth 3.08 times median homeowner household income

It’s great that existing homeowners are enjoying record low mortgage rates and equally affordable housing payments, but what about prospective home buyers?

Well, housing affordability has actually improved since 2018 due to the ultra-low mortgage rates available, per a new analysis from Zillow.

This is despite the fact that home values have grown at about double the rate of incomes over the past six years.

While households typically spent just 17.5% of income on monthly housing payments in September, down from 19.6% two years earlier, the typical U.S. property is now worth 3.08 times median homeowner household income, an all-time high per Zillow.

In other words, monthly payments are cheap for existing homeowners, but their properties are valued well above their incomes.

They remain affordable because many of these homeowners have small mortgage balances and super low mortgage rates.

But if these same folks were to buy their homes today, it might not work out, which brings us to those prospective buyers, or Gen Z home buyers.

Zillow noted that home values have increased a whopping 38.3% since September 2014, while homeowner incomes have gone up just 18.8% over the same period.

If a home buyer puts down 20% on a median-priced property they would have only needed about $36,600 at the start of 2014, or 6.4 months of income for a median homeowner household.

Today, they’d need a $52,000 down payment, which is 7.5 months of income for that 20% down payment to avoid PMI and obtain a more favorable interest rate.

Even worse for those still renting, Zillow expects home prices to rise a further 7% over the next year, which would increase that required down payment another $3,600 to about $55,600.

This is essentially going to steer more new home buyers into low down payment mortgages, such as FHA loans that only require 3.5% down, or Fannie Mae HomeReady and its mere 3% down requirement.

While it at least gives them an option, they’re going to have higher mortgage payments as a result, due to a larger loan amount, higher mortgage rate, and compulsory mortgage insurance.

Additionally, they’ll have very little skin in the game, which could present a problem if home prices take a turn for the worse, as they did a decade ago.

The good news is the bulk of homeowners are sitting pretty on mounds of equity, so assuming cash out refis don’t become the next big thing, the overall housing market should be relatively safe.

Could Existing Homeowners Afford to Buy Their Properties at Today’s Prices?

One last thing. We’ve basically got this weird situation where a lot of existing homeowners probably wouldn’t be able to afford their same properties if they were to purchase them today.

However, they’ve got a ton of home equity that is only growing each month thanks to regular payments of principal and rising home prices, meaning more money is essentially locked in their properties.

At the same time, it makes a move difficult because even a lateral purchase would be pricey from an affordability standpoint when you factor in stagnant incomes and higher property taxes.

Or the fact that some of these owners are retired or not making peak income.

In the end, it further exacerbates an already difficult situation in terms of housing inventory, which has been on the record low end of things for quite a while.

That just points to even higher home prices and lots of equity accrual, which buffers the housing market, but makes it increasingly difficult for new homeowners to get into the game.

Source: thetruthaboutmortgage.com

Terner Housing Innovation Lab Launches Nationwide Search for Early-Stage Housing Affordability Innovators

Housing Lab is kicking off its second group of ventures to elevate creative solutions to the housing crisis and promote an equitable recovery from COVID-19. They are looking for solutions that address racial and economic inequities in the housing market

Housing Lab offers:

  • A $100,000 grant to invest in product development and growth
  • 6 months of advising from dedicated coaches who are experts in policy and regulatory strategy, along with access to coaching around business development, financial modeling, partnership management, and more
  • Access to Terner Center’s network of builders, policymakers, nonprofits, and entrepreneurs

Highlights from the 2019-20 Cohort:

  • Closing of seed and Series A venture capital funding
  • Closing of funding vehicles to acquire property
  • Acquisitions that widen impact potential
  • Formal partnerships with other cohort members
  • Expansions to new states and markets

The early application deadline is March 12th and the regular deadline is April 7th. Apply early to ensure Housing Lab has enough time to get to know your company.

Apply Now

Source: geekestateblog.com

Americans’ Top 7 Retirement Priorities for Biden and Congress

President Joseph Biden
Christos S / Shutterstock.com

With a new president and Congress sworn in, many Americans are wondering what’s next — and how policies of the new administration will impact them.

When it comes to retirement, Americans have a few priorities they’d like to see policymakers address.

The 20th Annual Transamerica Retirement Survey of Workers asked about retirement financial security issues to determine which issues workers consider their highest priorities for the new president and Congress. These topped the list.

7. Increase access to affordable housing

anek.soowannaphoom / Shutterstock.com

Workers who think this should be a priority: 34%

The U.S. is facing a housing affordability crisis, according to a Harvard study sponsored by Habitat for Humanity. The study found that more than 37 million households were “housing cost-burdened” — meaning they spent more than 30% of their income on housing.

More than 17 million were “severely cost-burdened” — spending more than half their income on housing. Finding affordable housing in retirement is an important part of survival.

6. Add financial literacy to school curriculums

Monkey Business Images / Shutterstock.com

Workers who think this should be a priority: 34%

Workers believe that educating Americans early about personal finance issues could help them make better decisions later in life. In fact, a survey from the National Foundation for Credit Counseling (NFCC) reports that 78% of U.S. adults believe they could benefit from financial advice from a professional.

The National Endowment for Financial Education (NEFE) asserts that financial literacy education can help improve Americans’ financial outcomes, and that might be one way for future generations to improve their retirement prospects.

5. Increase access to workplace retirement plans

Myvisuals / Shutterstock.com

Workers who think this should be a priority: 36%

According to a brief prepared by the Congressional Research Service, 71% of workers have access to a retirement plan, but there’s only 55% participation. Among those who do participate, those with lower incomes get a smaller practical tax benefit than those with higher incomes.

Biden proposes “equalizing” the tax benefits of participation, as well as increasing tax benefits to small businesses that offer retirement plans. On top of that, Biden’s proposals include an “automatic 401(k)” for those without access to workplace retirement plans.

4. Make long-term care more affordable

Nursing Home
Photographee.eu / Shutterstock.com

Workers who think this should be a priority: 37%

Depending on the type of long-term care you need, it can cost more than $7,000 per month for a private room in a nursing home, according to the U.S. Department of Health and Human Services. Medicare doesn’t cover long-term care costs, making it difficult for retirees to pay for such care.

As a result, the respondents to the Transamerica survey are interested in having Biden and Congress innovate solutions to make long-term care services more affordable for more people.

3. Address Medicare funding shortfalls

Doctor examining a senior patient
didesign021 / Shutterstock.com

Workers who think this should be a priority: 42%

Medicare premiums and out-of-pocket costs can stress seniors’ finances big time. However, future costs to retirees could be even greater, as Medicare’s finances continue to deteriorate. According to the Social Security Administration, Medicare faces long-term financing shortfalls. With this in mind, respondents to the Transamerica survey are interested in shoring up Medicare funding.

One of Biden’s proposals, lowering the eligible age for Medicare, faces a tough battle in Congress, according to CNBC. While such a move would expand access to health care for those 60 and older, it might not address the funding shortfall.

2. Make health care more affordable

Woman with surprise medical bill
Antonio Guillem / Shutterstock.com

Workers who think this should be a priority: 47%

Health care costs continue to rise, with the Centers for Medicare and Medicaid Services reporting that private health insurance spending grew 3.7% in 2019. On top of that, out-of-pocket spending on health care grew 4.6% in 2019. With national health expenditures projected to grow at a healthy clip, it’s not a surprise that the Transamerica respondents are concerned about affordable health care.

So far, Biden has directed the insurance exchanges created by the Affordable Care Act to be open for a special enrollment period for three months (through May 15). The Kaiser Family Foundation estimates that, through the exchanges, as many as 4 million people could get a plan at no cost to them and an additional 4.9 million could get reduced-cost plans. Biden has promised to protect and build on the Affordable Care Act in an effort to reduce Americans’ health care costs.

1. Address Social Security funding shortfalls

Social Security payments
Steve Heap / Shutterstock.com

Workers who think this should be a priority: 49%

The top priority for American workers is addressing the stability of the Social Security system, according to the Transamerica survey. Respondents want Social Security benefits to be available in the future, and concerns about funding issues continue to weigh on the program.

When it comes to addressing a projected shortfall, Biden has proposed raising payroll taxes for those with more than $400,000 in earnings. In 2021, payroll taxes are limited to only a worker’s first $142,800 in earnings. Biden’s proposal would levy new payroll taxes on earnings above $400,000.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Source: moneytalksnews.com

What Is Redlining?

Homeownership is a major goal for many people. Not only is a house the biggest purchase many will ever make, but owning a home is a way to build and transfer wealth.

While nearly 75% of non-Hispanic white Americans were homeowners in 2020, the homeownership rate was almost 60% for Asian Americans and just over 49% for Hispanic Americans, according to the Census Bureau. Black Americans were the least likely of all minority groups to own a house, at just over 44% in 2020.

Why the stark disparity? The answer, in part, is redlining, a discriminatory housing policy that made it difficult for Black, immigrant and poor families to buy homes for several decades. While redlining was banned more than 50 years ago, its negative effects are still felt today.

Redlining definition

Redlining is a term that describes the denial of mortgage financing to otherwise creditworthy borrowers because of their race or where they want to live.

The term was coined by sociologist John McKnight in the 1960s. It refers to areas marked in red on maps where banks would not lend money, but the discriminatory practice began much earlier.

In the 1930s, as part of the New Deal, the federal government created the Home Owners’ Loan Corporation and the Federal Housing Administration to stabilize the housing industry.

The HOLC was designed to provide low-interest, emergency loans to homeowners in danger of foreclosure, while the FHA replaced high-interest loans of the early 20th century with longer-term, government-insured mortgages at lower interest rates.

To guide lending decisions, the HOLC instituted color-coded “residential security” maps. These maps separated areas the HOLC considered safe for lending from areas that should be avoided. Although the HOLC said the maps would help lenders assess risk and property values, racial biases were clearly at play.

Neighborhoods that were predominantly white were usually colored in green or blue and considered the least risky. It was easier to get home loans in these areas.

Areas with a high number of Black, Jewish and Asian families, which often had older homes or were closer to industrial areas, were typically shaded in red and labeled “hazardous.” Almost no lender would provide mortgages in these areas.

Areas that bordered Black neighborhoods were colored yellow and were also rarely approved for loans.

Effects of redlining

The grading of neighborhoods based on perceived credit risk restricted the ability of Blacks and other minority groups to get affordable loans or even to rent in certain areas.

Exclusion from government lending programs

The FHA, as well as private banks and insurers, used the HOLC’s redlining practices to guide their underwriting decisions.

As a result, it was almost impossible for nonwhite Americans to gain access to the affordable loans offered by agencies like the FHA and Veterans Administration — programs supposedly intended to expand homeownership.

In fact, nonwhite people received just 2% of the $120 billion in housing financed by government agencies between 1934 and 1962, historian George Lipsitz notes in his book “The Possessive Investment in Whiteness.”

Racially restrictive covenants

Racially restrictive covenants are agreements, often included in a property deed, that prevent property owners from selling or leasing to certain racial groups.

These covenants reinforced redlining by prohibiting Blacks and other groups from buying or occupying property in various cities throughout the country.

Although the GI Bill promised low-cost home loans to veterans of World War II, lending discrimination and racially restrictive covenants meant Black soldiers couldn’t buy homes in developing suburbs, for example.

Racially restrictive covenants remain in some real estate deeds, though a 1948 Supreme Court ruling says they aren’t enforceable.

Even so, decades later, Black and Hispanic Vietnam War veterans and their families encountered similar racial discrimination when trying to buy and rent homes in certain areas.

Is redlining illegal?

Angered by the inability of Vietnam War veterans of color to obtain housing, groups like the National Association for the Advancement of Colored People pressured the government to pass the Fair Housing Act of 1968.

As part of the Civil Rights Act, the Fair Housing Act made it illegal for mortgage lenders and landlords to discriminate against someone for their race, color, religion, sex or national origin.

Redlining maps may no longer be in use, but more than 50 years after the law was passed, housing discrimination still exists, says Andre M. Perry, a senior fellow in the Metropolitan Policy Program at the Brookings Institution.

Paired testing studies using equally qualified home seekers of different races have found that some real estate agents discriminate against people of color by not showing them properties in white neighborhoods or showing them fewer homes in general.

Perry also says research he published in 2018 shows homes in Black majority areas are undervalued by $48,000 on average, resulting in $156 billion in cumulative losses.

“Just because a law changed, it doesn’t mean the practices and procedures that still may devalue homes in Black neighborhoods, aren’t still there,” he says. “Ultimately, it’s the reduction of wealth that is the most harmful aspect of redlining.”

How redlining reinforced the racial wealth gap

The racial wealth gap is a term that describes the difference between the median wealth of whites compared with other groups. The median and mean net worth of Black families are less than 15% that of white families, according to Federal Reserve 2019 data.

The disparity exists today because Blacks were locked out of homeownership by redlining and were unable to build generational wealth, says Nikitra Bailey, an executive vice president at the Center for Responsible Lending.

“This persistent gap in homeownership opportunities between white families and families of color literally is rooted in the fact white families got a head start,” Bailey adds.

In fact, the homeownership divide between Blacks and whites is back to where it was in 1890, according to the National Fair Housing Alliance. And the gap is even larger than it was in 1968 when the Fair Housing Act was enacted.

Sheryl Pardo, a spokesperson for the nonprofit research organization Urban Institute, stresses that national, state and local policies are needed to address the homeownership and racial wealth inequities redlining has left behind.

The Urban Institute’s proposals include zoning laws to improve access to affordable housing, counseling before and after purchasing a home to prepare borrowers for the costs of homeownership, the expansion of down payment assistance programs and the development of financial products for homeowners to repair, maintain and improve their homes.

“Homeownership is still the most significant wealth-building tool in this country,” Pardo says. “If you want the Black community to make up that distance, homeownership has to be a key piece of it. It’s almost like you need a shock-and-awe response. It’s not going to happen by tweaking one little lever.”

Source: nerdwallet.com

Americans’ Top 7 Retirement Priorities for Biden and Congress

President Joseph Biden
Christos S / Shutterstock.com

With a new president and Congress sworn in, many Americans are wondering what’s next — and how policies of the new administration will impact them.

When it comes to retirement, Americans have a few priorities they’d like to see policymakers address.

The 20th Annual Transamerica Retirement Survey of Workers asked about retirement financial security issues to determine which issues workers consider their highest priorities for the new president and Congress. These topped the list.

7. Increase access to affordable housing

anek.soowannaphoom / Shutterstock.com

Workers who think this should be a priority: 34%

The U.S. is facing a housing affordability crisis, according to a Harvard study sponsored by Habitat for Humanity. The study found that more than 37 million households were “housing cost-burdened” — meaning they spent more than 30% of their income on housing.

More than 17 million were “severely cost-burdened” — spending more than half their income on housing. Finding affordable housing in retirement is an important part of survival.

6. Add financial literacy to school curriculums

Monkey Business Images / Shutterstock.com

Workers who think this should be a priority: 34%

Workers believe that educating Americans early about personal finance issues could help them make better decisions later in life. In fact, a survey from the National Foundation for Credit Counseling (NFCC) reports that 78% of U.S. adults believe they could benefit from financial advice from a professional.

The National Endowment for Financial Education (NEFE) asserts that financial literacy education can help improve Americans’ financial outcomes, and that might be one way for future generations to improve their retirement prospects.

5. Increase access to workplace retirement plans

Myvisuals / Shutterstock.com

Workers who think this should be a priority: 36%

According to a brief prepared by the Congressional Research Service, 71% of workers have access to a retirement plan, but there’s only 55% participation. Among those who do participate, those with lower incomes get a smaller practical tax benefit than those with higher incomes.

Biden proposes “equalizing” the tax benefits of participation, as well as increasing tax benefits to small businesses that offer retirement plans. On top of that, Biden’s proposals include an “automatic 401(k)” for those without access to workplace retirement plans.

4. Make long-term care more affordable

Nursing Home
Photographee.eu / Shutterstock.com

Workers who think this should be a priority: 37%

Depending on the type of long-term care you need, it can cost more than $7,000 per month for a private room in a nursing home, according to the U.S. Department of Health and Human Services. Medicare doesn’t cover long-term care costs, making it difficult for retirees to pay for such care.

As a result, the respondents to the Transamerica survey are interested in having Biden and Congress innovate solutions to make long-term care services more affordable for more people.

3. Address Medicare funding shortfalls

Doctor examining a senior patient
didesign021 / Shutterstock.com

Workers who think this should be a priority: 42%

Medicare premiums and out-of-pocket costs can stress seniors’ finances big time. However, future costs to retirees could be even greater, as Medicare’s finances continue to deteriorate. According to the Social Security Administration, Medicare faces long-term financing shortfalls. With this in mind, respondents to the Transamerica survey are interested in shoring up Medicare funding.

One of Biden’s proposals, lowering the eligible age for Medicare, faces a tough battle in Congress, according to CNBC. While such a move would expand access to health care for those 60 and older, it might not address the funding shortfall.

2. Make health care more affordable

Woman with surprise medical bill
Antonio Guillem / Shutterstock.com

Workers who think this should be a priority: 47%

Health care costs continue to rise, with the Centers for Medicare and Medicaid Services reporting that private health insurance spending grew 3.7% in 2019. On top of that, out-of-pocket spending on health care grew 4.6% in 2019. With national health expenditures projected to grow at a healthy clip, it’s not a surprise that the Transamerica respondents are concerned about affordable health care.

So far, Biden has directed the insurance exchanges created by the Affordable Care Act to be open for a special enrollment period for three months (through May 15). The Kaiser Family Foundation estimates that, through the exchanges, as many as 4 million people could get a plan at no cost to them and an additional 4.9 million could get reduced-cost plans. Biden has promised to protect and build on the Affordable Care Act in an effort to reduce Americans’ health care costs.

1. Address Social Security funding shortfalls

Social Security payments
Steve Heap / Shutterstock.com

Workers who think this should be a priority: 49%

The top priority for American workers is addressing the stability of the Social Security system, according to the Transamerica survey. Respondents want Social Security benefits to be available in the future, and concerns about funding issues continue to weigh on the program.

When it comes to addressing a projected shortfall, Biden has proposed raising payroll taxes for those with more than $400,000 in earnings. In 2021, payroll taxes are limited to only a worker’s first $142,800 in earnings. Biden’s proposal would levy new payroll taxes on earnings above $400,000.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Source: moneytalksnews.com

Assisted Living Boss Pleads Guilty in $3.6M Mortgage Scam

A Texas assisted living facility’s owner has pleaded guilty to defrauding the U.S. Department of Housing and Urban Development and will pay restitution, according to the Department of Justice. So reports McKnight’s Senior Living.

Acting U.S. Attorney Nicholas Ganjei said that clinical psychologist Rafael Otero and his son, Antonio Otero, “exploited a HUD-insured mortgage program designed to provide affordable housing for those suffering from diseases like Alzheimer’s.”

The Oteros allegedly bilked U.S. taxpayers to the tune of $3.6 million.

Read the full article from McKnight’s Senior Living.

Source: themortgageleader.com

What is mortgage loan modification, and is it a good idea?

Trouble paying your mortgage? You have options

You might be wondering about mortgage loan modification if you’re:

  • Experiencing financial hardship due to the coronavirus
  • Having trouble making your monthly mortgage payments
  • Currently in mortgage forbearance but worried about what will happen when forbearance ends

The good news is, help is available. But mortgage relief options are not one-size-fits-all.

Depending on your circumstances, you might be eligible for a loan modification. Or, you might be able to pursue another avenue like a refinance. Here’s what you should know about your options.

Check your refinance eligibility (Feb 17th, 2021)


In this article (Skip to…)


What is loan modification?

Loan modification is when a lender agrees to alter the terms of a homeowner’s mortgage to help them avoid default and keep their house during times of financial hardship.

The goal of a mortgage loan modification is to reduce the borrower’s payments so they can afford their loan month-to-month. This is typically done by lowering the mortgage rate or extending the loan’s repayment term.

“A mortgage loan modification does not replace your existing home loan or your lender,” explains Karen Condor, a finance and insurance expert with Loans.org.

“However, it restructures your loan in the interest of making it more manageable when you experience difficulties in making your mortgage payments.”

How mortgage loan modification works

With a loan modification, the total principal amount you owe won’t change.

“But the lender may agree to a lower interest rate, reduced loan length, or a longer payoff period,” says Elizabeth Whitman, attorney and managing member of Whitman Legal Solutions, LLC.

Any of these strategies could help reduce your monthly mortgage payments and/or the total amount of interest you pay in the long run.

Modification can also include switching from an adjustable-rate mortgage to a fixed-rate mortgage and rolling late fees into your principal, adds Condor.

Note, loan modification is intended to make a mortgage more affordable month-to-month. But it often involves extending the loan term or adding missed payments back into the loan — which may increase the total amount of interest paid.

Refinancing into a new loan, on the other hand, often reduces the monthly payment and the total interest cost.

Loan modification vs. refinance

A refinance is typically the first plan of action for homeowners who need a lower mortgage payment.

Refinancing can replace your original loan with a new one that has a lower interest rate and/or a longer term. This may offer a permanent reduction in mortgage loan payments without negatively affecting your credit.

However, borrowers going through financial hardship might not be able to refinance.

They may have trouble qualifying for the new loan due to a reduced income, lower credit score, or unexpected debts (such as medical expenses).

In these cases, the homeowner might be eligible for a mortgage loan modification.

Loan modification is usually reserved for homeowners who are not eligible to refinance due to a financial hardship.

Mortgage modification is usually reserved for borrowers who do not qualify for a refinance and have exhausted other possible mortgage relief options.

“With a loan modification, you work with your existing bank or lender on modifying the terms of your existing mortgage,” explains David Merritt, a consumer finance litigation attorney with Bernkopf Goodman, LLP.

“If you’ve defaulted on your existing mortgage, chances are your credit has been negatively impacted to the point where a new lender would be wary to give you a new loan.”

“Typically a refinance is not possible in this situation,” says Merritt.

That means there’s no real contest between loan modification vs. refinancing. The right option for you will depend on the status of your current loan, your personal finances, and what your mortgage lender agrees to.

Check your refinance eligibility (Feb 17th, 2021)

Loan modification vs. forbearance

Forbearance is another way servicers can help borrowers during times of financial stress.

Loan forbearance is a temporary plan that pauses mortgage payments while a homeowner gets back on their feet.

For example, many homeowners who lost their jobs or had reduced income were able to request forbearance for up to a year or more during the COVID pandemic.

Unlike forbearance, mortgage loan modification is a permanent plan that changes the rate or terms of a home loan.

Forbearance and loan modification can sometimes be combined to make a more effective mortgage relief plan.

For instance, a homeowner whose income is still reduced at the end of their forbearance period may be approved for a permanent loan modification.

Or, a homeowner approved for mortgage modification may also have part of their unpaid principal forborne (put off) until the end of the repayment period.

Who is eligible for a loan modification?

To qualify for a loan modification, a borrower usually must have missed at least 3 mortgage payments and be in default.

“Sometimes, a borrower who has experienced financial setbacks, which makes a default imminent, can qualify for a loan modification. But not everyone in default under their mortgage is eligible for a loan modification,” explains Whitman.

“Borrowers whose financial setback is so severe that they will never be able to repay their mortgage won’t receive a modification, nor will borrowers who have the ability to make mortgage payments either from their income or savings.”

“Borrowers whose financial setback is so severe that they will never be able to repay their mortgage won’t receive a modification” –Elizabeth Whitman, attorney & managing member, Whitman Legal Solutions, LLC

In addition to providing a hardship letter or statement, prepare to provide proof of income, two years’ worth of tax returns, and bank/financial statements, says Condor.

Be aware, however, that your lender is not obligated to provide a loan modification.

“Once a lender has an executed contract — meaning the loan — they don’t have to change it. Many [homeowners] are denied a mortgage loan modification,” Gallagher explains.

“If the lender desires to modify the terms, per your request, then you have a starting point.”

How to request a loan modification

The process for requesting a loan modification will vary depending on who manages your loan.

The first thing you need to do is contact your loan servicer. This is the company to which you send payments, and the one you need to work with to determine your options for loan modification.

Some mortgages are managed, or “serviced” by the original lender. But most home loans are serviced by a separate company.

For instance, you may have received the loan from Wells Fargo, but now make payments to U.S. Bank.

The loan servicer is the company that takes your monthly mortgage payments; you can find yours by checking the name and contact information on your latest mortgage statement.

Many borrowers begin the process by sending a ‘hardship letter’ to their servicer or lender. A hardship letter is simply a note that describes the borrower’s financial difficulties and explains why they can’t make payments.

The lender will likely request financial information and documentation, including bank statements, pay stubs, and proof of your assets.

These documents will help your lender understand the full scope of your personal finances and determine the correct path for mortgage relief.

Mortgage loan modification programs

Your loan modification options will depend on the type of loan you have and what your lender or loan servicer agrees to.

Conventional loan modification

“Fannie Mae, Freddie Mac, and private lenders of conventional loans have their own modification programs and guidelines,” says Charles Gallagher, a real estate attorney.

In particular, Freddie Mac and Fannie Mae offer Flex Modification programs designed to decrease a qualified borrower’s mortgage payment by about 20%.

Flex Modification typically involves adjusting the interest rate, forbearing a portion of the principal balance, or extending the loan’s term to make monthly payments more affordable for the homeowner.

To be eligible for a Flex Modification program, the homeowner must have:

  • At least 3 monthly payments past due on a primary residence, second home, or investment property
  • Or; less than 3 monthly payments past due but the loan is in “imminent default,” meaning the lender has determined the loan will definitely default without modification. This is only an option for primary residences

Certain hardships can trigger “imminent default” status; for instance, the death of a primary wage earner in the household, or serious illness or disability of the borrower.

Unemployment is typically not an eligible reason for Flex Modification.

Borrowers who are unemployed are more likely to be placed in a temporary forbearance plan — which pauses payments for a set period of time, but does not permanently change the loan’s term or interest rate.

In addition, government-backed FHA, VA, and USDA loans are not eligible for Flex Modification programs.

FHA loan modification

The Federal Housing Administration offers its own loan modification options to make payments more manageable for delinquent borrowers.

Depending on your situation, FHA loan modification options may include:

  • Lowering the interest rate
  • Extending the loan term
  • Rolling unpaid principal, interest, or loan costs back into the loan’s balance
  • Re-amortizing the mortgage to help the borrower make up missed payments

In some cases where extra assistance is needed, FHA borrowers may be eligible for the FHA-Home Affordable Modification Program (FHA-HAMP).

FHA-HAMP allows the lender to defer missed mortgage payments to bring the homeowner’s loan current. It can then request that HUD (FHA’s overseer) further reduce the monthly payment by opening an interest-free subordinate loan of up to 30% of the remaining loan balance. The borrower only pays principal and interest based on 70% of the balance, and can pay back the remainder upon a sale or refinance of the home.

Deferring this extra principal amount can help make it easier for FHA borrowers to get back on track with their loans.

FHA-HAMP is typically combined with one of the loan modification methods above to lower the borrower’s monthly payment.

Eligible FHA borrowers must complete a trial repayment plan to qualify for either loan modification or the FHA-HAMP program. This involves making on-time payments in the modified amount for 3 months straight.

VA loan modification

Veterans and service members with loans backed by the Department of Veterans Affairs can ask their servicer about VA loan modification.

VA loan modification can roll missed payments back into the loan balance, as well as other delinquent homeownership costs like unpaid property taxes and homeowners insurance.

After these costs are added to the loan, the borrower and servicer work together to establish a new repayment schedule that will be manageable for the veteran.

Note, VA modification is unique in that the interest rate might actually increase. So while this plan can help veterans bring their loans current, it won’t always reduce the homeowner’s monthly payments.

“For VA loan modification, several requirements apply,” notes Condor. She explains:

  • “Your VA loan must in default
  • You must have since recovered from the temporary hardship that caused the default
  • You must be able to support the financial obligations of the modified VA loan
  • And you must not have modified your VA loan in the past three years”

Some homeowners with VA loans may qualify for a ‘Streamline Modification.’

Streamline Modification does not require as much documentation as the traditional VA modification plan, but includes two extra requirements:

  • The combined principal and interest payment must drop by at least 10%
  • The borrower must complete a 3-month trial repayment plan to prove they can make the modified payments

Talk to your loan servicer about options for your VA loan.

USDA loan modification

USDA loan modification is for homeowners whose current loans are backed by the U.S. Department of Agriculture.

A USDA loan modification allows missing mortgage payments (including principal, interest, taxes, and insurance) to be rolled back into the loan balance.

USDA modification plans also allow a term extension up to 480 months, or 40 years total, to help reduce the borrower’s payments. And the servicer can lower the borrower’s interest rate, “even below the market rate if necessary,” according to USDA.

Servicers may cover up to 30 percent of the homeowner’s unpaid principal balance using a mortgage recovery advance.

Contact your loan servicer to find out whether you’re eligible for a USDA loan modification.

Is mortgage loan modification a good idea?

A mortgage loan modification is worth pursuing for the right candidates.

“A modification can give you a second bite at the apple and get you out of the default or foreclosure process, allowing you a chance to remain in your home,” says Merritt.

But caveats apply.

“Typically, a modification will take all of your missed payments and add those to the outstanding principal balance,” Merritt says.

Say your current mortgage has an outstanding balance of $300,000. Assume you missed $50,000 in payments. In this example, your modified balance would be $350,000, which is called ‘capitalization.’

“But imagine your home’s value is only $310,000,” adds Merritt. “Here, a modification would allow you to stay in your home and avoid foreclosure, but you would owe more than your house is worth. That would be a problem if, say, two years after modification you wanted to sell your home.”

Refinancing and other alternatives to modification

Loan modification isn’t your only option, thankfully.

Possible alternatives include refinancing, forbearance, a deed-in-lieu of foreclosure, or Chapter 13 bankruptcy.

Refinancing

As mentioned above, you should first check if you’re eligible to lower your interest rate and payment with a mortgage refinance.

You’ll have to qualify for the new mortgage based on your:

  • Credit score and credit report
  • Debt-to-income ratio
  • Loan-to-value ratio (your loan balance versus the home’s value)
  • Income and employment

It may be difficult to qualify for a refinance during times of financial hardship. But before writing this strategy off, check all the loan options available.

For instance, FHA loans have lower credit score requirements and allow higher debt-to-income (DTI) ratios than conventional loans. So it may be easier to refinance into an FHA loan than a conventional one.

Streamline refinancing

Homeowners with FHA, VA, and USDA loans have an additional option in the form of Streamline Refinancing.

A Streamline Refinance typically does not require income or employment verification, or a new home appraisal. Even the credit check might be waived (though the lender will always verify you have been making mortgage payments on time).

These loans are a lot more forgiving for homeowners whose finances have taken a downturn.

Note, Streamline Refinancing is only allowed within the same loan program: FHA-to-FHA, VA-to-VA, or USDA-to-USDA.

Check your Streamline Refi eligibility (Feb 17th, 2021)

Other mortgage relief options

Refinancing typically requires a loan-to-value ratio of 97% or lower, meaning the homeowner has at least 3% equity.

However, “borrowers who have less than 3 percent equity in their homes may qualify for Fannie Mae’s HIRO program,” suggests Whitman.

This ‘High-LTV Refinance Option‘ is intended for homeowners with Fannie Mae-backed loans who owe more on their mortgage than the property is worth.

“Other choices for borrowers with little or no equity in their homes include a consensual foreclosure or a short sale, which involves selling the property for less than the outstanding mortgage amount.”

What should you do?

Whitman continues, “Any borrower who will struggle to repay their mortgage and other debts after a loan modification should consider whether it is better to dispose of their home and find a more affordable housing option.”

To better determine if a refinance or mortgage loan modification is the right strategy for you, consult with your loan servicer, an attorney, or a housing counselor.

Mortgage loan modification FAQ

What happens when you get a loan modification?

The goal of a loan modification is to help a homeowner catch up on missed mortgage payments and avoid foreclosure. If your servicer or lender agrees to a mortgage loan modification, it may result in lowering your monthly payment, extending or shortening your loan’s term, or decreasing the interest rate you pay.

How do I get a mortgage loan modification?

Contact your mortgage servicer or lender immediately to alert them of your financial hardship and ask about loan modification options available. Be ready to provide all documentation requested, which can include financial statements, pay stubs, tax returns, and more.

How long does loan modification last?

Expect your loan modification process to take anywhere from one to three months, according to finance and insurance expert Karen Condor. Once your loan modification has been approved, the changes to your interest rate and/or loan terms are permanent.

Does loan modification hurt your credit?

A mortgage loan modification under certain government programs will not affect your credit. “But other loan modifications may negatively impact your credit and show up on your credit report. However, since your mortgage usually must be in default to request a modification, your financial difficulties are probably already on your credit report,” explains attorney Elizabeth Whitman.

Can you be denied a loan modification?

Yes. A mortgage loan is a contract, and the mortgage lender isn’t obligated to agree to a loan modification. “Borrowers whose financial situation is such that they will never be able to repay their mortgage loan, as well as borrowers who do not cooperate with lender requests, are likely to be denied a modification,” says Whitman.

How much does mortgage modification cost?

While there are no closing costs for a mortgage modification, your lender may charge a processing fee. “If your modification involves extending your loan’s term, that means you’ll pay more interest over the life of your loan,” explains attorney Charles Gallagher.

Do you have to pay back a loan modification?

Paying back a loan modification will depend on the type of modification you are given. “Your lender can apply a reduced interest amount to your loan’s principal on the backend that you must later pay back,” says Condor. “With a principal deferral loan modification, your lender reduces the amount of principal paid off with each payment. But the amount of principal your lender deferred will be due when your loan matures or the home is sold.”

Understand your options

Mortgage loan modification is typically reserved for homeowners who are already delinquent on their loans.

If you’re worried about mortgage payments, get ahead of the issue by checking your eligibility for a refinance or contacting your loan servicer about options before your loan becomes delinquent.

Many homeowners are facing financial hardship right now, and many lenders and loan servicers are willing to help. But help is only available to those who ask for it.

Verify your new rate (Feb 17th, 2021)

Source: themortgagereports.com

How Shaquille O’Neal Become a Real Estate Investor

Shaq became famous as a basketball player, a very large basketball player! He was 7-1 and was well over 300 pounds when he was playing in the NBA. Not only is he one of the best basketball players of all time but is a real estate investor as well. He has also been a major part of many other businesses like Ring doorbells, Five Guys Franchise, and he was an early investor in Google. After leaving the NBA, he has become even more involved in real estate and been a part of some very large deals! It is hard to find the exact information on what Shaq has done real estate-wise, but he has given hints over the years in interviews on how he started and what he is involved in. From what I could find out he started by flipping houses with a partner in New Jersey. He has also been involved in low-income housing in Denver and done deals in Florida as well. He currently is focusing on large projects in the New Jersey area where he spent time as a kid.

Where did Shaq live growing up?

Shaq was born in New Jersey and his father was a basketball player as well. However, his father had drug problems and was never a part of Shaq’s life. Shaq did have a stepfather who was in the army and Shaq ended up living in Texas and Germany as a kid because of his stepfather’s career. Shaq ended up going to high school in San Antonio and leading his team to a state championship. Shaq was a always big kid. He was 6-6 when he was 13! I was 6-1 when I was 13, but I stopped growing at 13 and Shaw did not.

It is important to know where Shaq grew up because it impacted his real estate investing later on. He was not a real estate investing just to make money. As he said on CNBC Make It:

I don’t invest in companies just to try and get the big hit,”  “I [invest] because I know it’s going to change people’s ideas… change people’s lives.”

How did Shaq blow his first million?

Shaq had an amazing interview with Daymond John (The Shark Tank) about how he spent a million dollars the first day he made it. He spent $150,000 on a Mercedes for himself, then his dad wanted a car so he bought him one, and then he bought his mom a $100,000 car. He bought jewelry, suits, CD changer, went to Vegas, etc. Then his banker called him in to warn him about his spending. Shaq had no idea about taxes and that he had spent the entire million without realizing it!

From that point on, he made sure to take care of his money and learn from those who know about money. He credits Magic Johnson with helping him learn a lot about money and investing it instead of wasting it.

How did Shaq start his real estate investing career?

During Shaquille O’Neal’s long playing career, he earned an estimated $292,198,327! He definitely had a head start as an investor by earning so much money in the NBA. However, he did not start with huge projects although some of the articles you read will have you believe he did. In a 2002 article from the Denver Post about an affordable housing project he said:

“We started buying homes out of foreclosure and paying $10,000 or $12,000 for them, fixing them up, and maybe selling them for $25,000 or $35,000,” Shaq said.”It would be easy for me to develop a housing community around a golf course or buy strip malls, but that’s not how I want my book to go.”

He was talking about Mike Parris, who was his uncle and business manager, and mentioned that he was doing this 4 years ago, which would have been 1998 when he was 26. Shaq started small in his hometown. At the time he would have been playing with the Orlando Magic in Florida.

While he may not have been the one swinging the hammer, he was definitely investing in real estate at a young age.

How did Shaq’s real estate investing evolve?

Shaq started the O’Neal group in 2006 which invests heavily in real estate, but as we know he was involved in investing before that. In the article in the Denver Post from earlier, he was also involved in buying big projects before that as well. In 2002 Shaq said;

“My dream is to own $1 billion a year in affordable housing,”

  • He started by purchasing a $65 million affordable housing project in the Denver area that eventually cost $100 million after property improvements and other costs were factored in. The project consisted of 1,500 units and the seller would only sell to investors who were willing to keep the affordable housing aspect of the project.
  • In 2006 his company invested in The Met in Miami which was a highrise with 1,000 units.
  • He also recently opened an $80 million apartment complex in New Jersey and has plans for another $150 million high rise.

What is a little frustrating is the giant gap you see from 2006 to 2018! it is hard to find much information on the O’Neal group or his real estate investments during that time. There was another project he was involved in Atlantic City, but I could not find out if that project was ever completed. However, he was not just investing in real estate during his career. He has done many things!

What other businesses has Shaq been a part of?

Shaq has said he loves real estate and obviously has been a part of some huge deals but he has done many other things as well! Here are a few of them:

  • Pre-IPO Google stock: He bought into Google before it even went public.
  • He started a clothing line
  • He has owned 17 Auntie Anne’s Pretzels restaurants
  • He has owned 150 car washes
  • He has owned 155 Five Guys Burgers and Fries franchises
  • He has owned 40 24 Hour Fitness gyms
  • He has been a partner in Las Vegas nightclubs
  • He has owned a movie theater
  • He was a partner with Muscle Milk
  • He was a partner with Vitaminwater
  • He was a partner with Loyal3
  • He has released albums with commercial success
  • He has been in movies and on TV
  • He is super involved with law enforcement

I am sure I am missing many other things he had done or been a part of! I have no idea how many of these things he has sold or still owns but he has sold many of his investments and business over the years. He is obviously very diversified!

How involved is Shaq in real estate investing?

I have no idea how involved Shaq is or was in real estate. He sounds very passionate about it when he talks about so he could be very involved. However, he has so many other things going on it would not surprise me if he is mostly the money guy and other people find the deals and put together the projects. There is nothing wrong with that as the best investors learn how to make money without doing a ton of work! If Shaq happens to read this and has some more information to add, I would love to hear from you! Mark @ Investfourmore.com

Source: investfourmore.com